The Consumer Price Index for February will be reported at 8:30 a.m. ET Wednesday and is expected to show that prices rose only slightly right before the Iran war sent energy costs skyrocketing.
Analysts and economists surveyed expect inflation overall to have risen 0.3% from January. Year over year, inflation is expected to remain tracking at 2.4%. Core inflation, which excludes the often-volatile categories of food and energy, is expected to have declined to a 0.2% month-over-month pace, down from 0.3% in January.
“The February CPI report should continue to show that inflation remains relatively contained,” Bank of America economists wrote in a recent note.
Crucially, February’s report was produced before the U.S. and Israel launched a large-scale attack on Iran on the final day of the month.
The critical Strait of Hormuz, off the southwestern corner of Iran, has been effectively shut down since the war began.
More than 20% of the world’s supply of oil typically transits the waterway to reach the international markets. As a result, the price of U.S. crude oil has increased more than 20% since the first strikes. Retail gas prices have also soared more than 50 cents.
Also in February, the Supreme Court struck down many of President Donald Trump’s tariffs, ruling that he exceeded his presidential authority when he imposed country-specific emergency tariffs last year. While Trump has replaced some of the tariffs with a global 10% duty, the impact on prices is not yet clear.
“Perhaps more important than the Feb. data is the evolving risk space for inflation,” Bank of America wrote. “While our base case is for the conflict to be short-lived, a longer conflict would likely lead to a more sustained increase in oil.”
“That would put upward pressure on headline, core inflation and inflation expectations in the months ahead,” BofA’s analysts added.
JPMorgan Chase’s chief U.S. economist, Michael Feroli, wrote in a note this week: “The economy should not have much trouble weathering a moderate oil price spike, but there is an increasing risk that higher prices could create a more material near-term drag on the economy—particularly if they were to rise well above $100 per barrel and hold there.”
Still, he said, “the risk remains for a much larger and more sustained increase in oil prices should disruptions to supply persist.”
On Tuesday, Iran continued to exchange fire with regional neighbors.
Morgan Stanley economist Diego Anzoategu wrote in a recent note that the impact on core inflation from higher oil prices “is not only small but also highly narrow: historically, the pass-through occurs mainly through airfares. Absent a sharper rise in energy prices, the effects on core inflation tend to be short-lived and limited.”
U.S. oil prices rose above $100 per barrel Sunday and Monday morning, but since then trading has moderated, and the benchmark traded around $85 per barrel late Tuesday.
Airlines used to hedge against spiking prices, but they no longer do so.
United Airlines CEO Scott Kirby told CNBC on Friday that fare increases would “probably start quick.” Still, he said, demand “has not taken even a tiny step back” since the war began.
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